Case 5.4 Digital Equipment Corporation:
Counting the real cost of employee
turnover
This case was prepared by Helen Peck, Cranfield School of Management, as a basis
for discussion, rather than to illustrate effective or ineffective handling of an admin-
istrative situation. The author wishes to thank Digital Equipment Corporation for
allowing the use of this data.
© Copyright Cranfield School of Management, May 1995.
There is a wealth of accumulated research to suggest that satisfied and
well-motivated employees perform better than indifferent or dissatisfied
ones. Furthermore, anecdotal evidence supports the notion that if
employee satisfaction can be raised, then employee turnover is likely to
fall, and corresponding improvements in customer satisfaction and reten-
tion can be realized. However, it appears that few companies have ever
tried to quantify the full cost of employee turnover, or assess its impact on
revenues. This is a rare example of one that did: the Digital Equipment
Corporation.
In 1987, the British economy was booming, and in the business systems
end of the computer industry, things had never been better. At the time, the
UK subsidiary of Digital Equipment Corporation was Britain’s fastest
growing computer company. Digital’s Human Resource (HR) department
had, however, identified a problem that threatened to limit further growth
- an acute skills shortage. The skills shortage was causing concern
throughout the South East of England, with the ‘M4 corridor’ – epicentre
of Digital’s UK activities – being the area most badly affected. Digital had
a reputation as a caring and enlightened employer. It readily invested in
employee training and development, and offered its staff security of
employment with its strict ‘no layoffs’ policy. Nevertheless, the company
was finding it increasingly difficult to recruit new employees of a suffi-
ciently high calibre.
The HR team decided, therefore, to do all that it could to minimize the
need for further recruitment. If suitable new staff were so difficult to find,
then it made sense to make greater efforts to minimize the voluntary
turnover of existing employees. With this objective in mind, the HR team
began an in-depth study to discover why people were leaving Digital, and
(to strengthen support for future employee retention initiatives) to track
the cost of their replacement.
The study took four easily defined categories of employees as its sample,
two customer facing – salespeople and customer training staff – and two
categories of support staff – secretarial and professional (accountants, mar-
keting personnel, etc.). Together these groups accounted for roughly half of
402 Relationship Marketing